Section 503(b)(9) of the Bankruptcy Code allows an administrative expense “for the value of any goods received by the debtor within 20 days before the date of the commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” 11 U.S.C. § 503(b)(9) (emphasis added).
Significantly, though, Section 503(b)(9) does not apply to services. So the question that has been addressed by certain bankruptcy courts is whether electricity qualifies as a good or service. If electricity qualifies as a good, the claim of a seller/supplier of electricity should be entitled to an administrative priority under Section 503(b)(9) which typically get paid in full in a bankruptcy case. On the other hand, if electricity is considered a service, the seller/supplier’s claim will be limited to a general unsecured claim.
One of the contributing factors to the confusion on this issue stems from the lack of a definition of goods under the Bankruptcy Code. Many courts evaluating this issue have relied on the definition of goods under the Uniform Commercial Code (the “UCC”) which reads in part “all things . . . which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Chapter 8) and things in action.” The courts that have determined that electricity does not qualify as a good under Section 503(b)(9) have generally focused their analysis on whether electricity is moveable at the time it is identified. In undertaking this analysis and determining that electricity is not moveable at the time of identification, one court emphasized the expert testimony of the objecting debtor which noted as follows:
“Electricity travels near the speed of light, and electricity meters operate at a much slower speed than that, and though all widely used forms of electric meters do measure the amount of electricity that passed through them, they only do so after the electricity was consumed.
Pacificorp d/b/a Pacific Power & Light v. North Pacific Canners & Packers Inc., 2023 WL1765691 at 4 (D. Or. Feb. 3, 2023).
Other courts applying the same UCC definition of “goods” to electricity have reached an opposite conclusion. In In re Erving Indus. Inc., 432 B.R. 354, 374 (Bankr. D. Mass. 2010),the bankruptcy court concluded that electricity easily falls within the UCC’s definition of “goods” for purposes of Section 503(b)(9). Similarly, other courts have reached the same conclusion. In re Wometco de Puerto Rico Inc., 2016 WL 155393 at 3 (Bankr. D.P.R. Jan. 12, 2016).
Conclusion
Whether electricity qualifies as a “good” for purposes of the priority provisions of Section 503(b)(9) is hardly a settled issue. As stated above, an administrative claim typically gets paid in full in a bankruptcy case while general unsecured claims are entitled to less favorable treatment. Seller/suppliers of electricity which have supplied electricity to a debtor within 20 days of the bankruptcy filing should carefully consider their options of seeking allowance of an administrative claim under Section 503(b)(9) based on this unsettled area of bankruptcy law. Again, the upside is full payment of the claim versus possible partial payment.
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